Why acquisitions and mergers

Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. A merger describes a scenario where two companies unite, and one of the companies ceases to exist after becoming absorbed by the other.

The boards of directors of both companies must first secure approval from their respective shareholder bases. An acquisition occurs when one company the acquirer obtains a majority stake in the target firm, which incidentally retains its name and legal structure. For example, after Amazon acquired Whole Foods in , the latter company maintained its name and continued executing its business model, as usual.

A consolidation results in the creation of an entirely new company, where the stockholders of both companies approve of the consolidation and receive common equity shares in the newly formed entity. For example, in , Harris Corp. A tender offer describes a public takeover bid, where an acquiring company a.

The acquiring company bypasses the target company's management and board of directors, which may or may not approve of the deal. Reducing competition. Buying up new intellectual property, products or services may be cheaper than developing these yourself.

Organic growth, ie the existing business plan for growth, needs to be accelerated. Businesses in the same sector or location can combine resources to reduce costs, remove duplicated facilities or departments and increase revenue.

In this guide: Introduction Benefits of mergers and acquisitions Is your business is ready for a merger or acquisition? Identify targets for a merger or acquisition Assess the target business for a merger or acquisition Assessing business value for a merger or acquisition What can go wrong with a merger or acquisition?

Printer-friendly version. Also on this site. Can you negotiate key non-financial terms in exchange for an increase in price? Is the deal price sufficiently attractive that the seller is willing to live with post-closing indemnity risks that are greater than it would otherwise prefer? All negotiations should be conducted with courtesy and professionalism.

Richard D. His focus is on Internet, digital media, and software companies, and he was the founder of several Internet companies. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business.

He can be reached through LinkedIn. David A. He is a member of the Board of Directors of the Giffords Law Center to Prevent Gun Violence and has served on additional educational and charitable boards.

Richard V. He has over 35 years of experience in the areas of mergers and acquisitions, securities law, and corporate law. This article was originally published on AllBusiness. This is a BETA experience. You may opt-out by clicking here. More From Forbes. Nov 8, , pm EST. Sep 28, , am EDT.

Aug 30, , am EDT. Aug 18, , pm EDT. These approaches have been behind the handful of deals that have succeeded. The value of such deals eclipsed the previous record, set in , which had surpassed an earlier peak in This is perhaps not auspicious: It seems pace the late Prince that we are partying as if it were —and to boot. Why is that so? The answer is surprisingly simple: Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.

This insight echoes one from Adam Grant, who notes in his book Give and Take that people who focus more on giving than on taking in the interpersonal realm do better, in the end, than those who focus on maximizing their own position. That was the case in all the disasters just cited. Microsoft and Google wanted to get into smartphone hardware, HP wanted to get into enterprise search and data analytics, News Corp. When a buyer is in take mode, the seller can elevate its price to extract all the cumulative future value from the transaction—especially if another potential buyer is in the equation.

But in addition, none of them understood their new markets, which contributed to the ultimate failure of those deals. If you have something that will render an acquired company more competitive, however, the picture changes. Creating value by being a better investor works well in countries with less-developed capital markets and is part of the great success of Indian conglomerates such as Tata Group and Mahindra Group.

Even GE has slimmed down considerably. But even in developed countries, being a better investor gives scope for creating value. In new, fast-growing industries, which experience considerable competitive uncertainty, investors that understand their domain can bring a lot of value. In the virtual reality space, for example, app developers were confident that Oculus would be a successful new platform after Facebook acquired it, in , because they were certain that Facebook would provide the requisite resources.

Another way to provide capital smartly is to facilitate the roll-up of a fragmented industry in the pursuit of scale economies. This is a favorite tool of private equity firms, which have earned billions using it. In such cases, the smarter provider of capital is usually the biggest existing player in the industry, because it brings the most scale to each acquisition until returns on scale max out.

Of course, not all fragmented industries have the potential to deliver scale or scope economies—a lesson learned the hard way by the Loewen Group Alderwoods after bankruptcy.

Loewen rolled up the funeral home business to become the biggest North American player by far, but its size alone created no meaningful competitive advantage over local or regional competitors. Often they arise through the accumulation of market power.